SIZE, GROWTH & PROFITABILITY The $6bn domestic motor insurance market is the largest component of the general insurance market, has grown ~5% p.a. for 5 years, and has a ~9% to ~15% profit margin Australian General Insurance Market by class of business ($m) Growth of the Domestic Motor Insurance Market ($m) CAGR = 4.98% Employers liability 1,191 4% Other 4,125 16% Professional indemnity 1,496 6% Profit (9%) 7,000 Householder s 4,338 16% Motor insurance industry profitability(1) 6,018 5,646 6,000 Commercial motor 1,602 6% 5,000 4,720 4,776 4,944 Expense 5,209 Commission paid to distributor (7.5% - 15%) (20%) 4,000 Loss Sacrificed to Underwriter (71%) (85% - 92.5%) Full service underwriters Brokers / Distributors 3,000 Public & product liability 2,145 8% Profit Acquisition Cost Fire & ISR 3,151 12% CTP motor 2,286 9% Domestic motor 6,018 23% 2,000 1,000 0 2004 Total GI Market: $26,352m in Gross Premium Revenue Domestic motor insurance is worth $6bn in premiums per annum, and is the largest segment of the Australian general insurance market Given that a number of players sell both domestic motor and CTP, these two market segments can be considered together 2005 2006 2007 2008 2009 Share of GI Market: 21.2% 21.1% 21.7% 21.8% 22.8% 22.8% System growth has averaged 5% p.a. over the last 5 years In this time the motor insurance share of the overall GI market has grown slightly from 21% to 23% (1): Based on 2009 industry actuals, excludes investment income Source: APRA June 2009, JP Morgan General Insurance Survey 2009 Underwriters earned an average margin of 9% in 2009, while distributors earned 7.5% 15% before acquisition costs The profitability and strategic implications of business models are discussed further in this report 2

UNDERLYING DRIVERS OF MARKET GROWTH The underlying growth of Australias population and the increase in car ownership all result in additional vehicles and drive demand for comprehensive domestic motor insurance Australian Population Growth (millions) 22.5 Total Passenger Vehicles (millions, LHS) and Passenger Vehicles per 1000 People (RHS) 14 22.0 12 2.54% annual growth 10 20.5 1.54% annual growth 20.0 0.55 cars per person 19.0 1.02% annual growth 2 18.0 Resident Population Australias ongoing population growth and wealth continues to drive demand for passenger vehicles 640 52 50 600 48 580 46 540 44 520 42 500 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 54 660 560 4 18.5 56 620 8 6 19.5 700 680 12.0m cars 21.5 21.0 Australian New Passenger Vehicle Sales (thousands) 40 2001 2002 2003 2004 2005 2006 2007 2008 2009 Total Vehicles Vehicles per 1000 Total registered passenger vehicles have risen from 9.8m in 2001 to just over 12m in 2009 Vehicle ownership rates (penetration) are also increasing, with cars per person rising 1.02% per annum over the last decade The increase in ownership rates levelled off in 2008/2009 as a poor economic environment slowed vehicle purchasing 2001 2002 2003 2004 2005 2006 2007 2008 2009 Passenger Vehicles Much of the demand for motor vehicles is met through new vehicle sales Sales fell dramatically in 2008 and 2009, but have since shown an upward trend though it is unknown whether this will herald a return to historic levels Source: ABS 3

INDUSTRY TRENDS The hangover from the GFC, technological innovations, and new competitive pressures are expected to shape the market over the next several years Economic Market hardening with premium increases of 5% in 2009, and premium growth of 5% and 4% predicted by industry participants for 2010 and 2011 (1) Decreasing sum insured due to lagging impact of economic slowdown (fewer new cars and shift to smaller cars) though this is now offset by increasing new vehicle sales Improved investment returns as equity markets recover Claims costs lower due to strong AUD reducing cost of parts, however upwards pressure also present due to a shortage of repairers and consequently higher labour costs Political Competitive The Henry Tax Review may alter the economics of vehicle ownership and operation, impacting demand Regulatory changes to capital standards are expected in 2010 which may impact funding mix and ROE Regulatory tightening as a hangover from the GFC may also have unexpected impacts going forward Entry of new players potentially eroding market share of leaders and mid-tier players New products and business models (e.g. Pay-asyou-drive and online aggregators) may impact profitability Well known retailers leveraging their brands (e.g. Australia Post, Coles) Technological Internet distribution models have lowered the barriers to entry If widely adopted, internet aggregators / price comparison websites have the potential to increase shopping around and price-based decision making, however their success is yet to be determined Web-bots are making it simpler for insurers to benchmark pricing against one another Social High fuel costs vs. historical averages are contributing to declining car use (likely to reduce claims frequency) Increasing familiarity with online purchasing driving demand for 24-hour quotations and sales The focus on climate change and the contribution of car usage may lead to an increase in car share clubs (e.g. Go Get) driving down car usage and ownership (1): Some analysts are sceptical of this, and expect more modest premium growth as a result of competitive pressures Source: Media articles, JP Morgan General Insurance Survey 2009 4

CUSTOMER BUYING BEHAVIOURS Customers consider a number of factors in selecting motor insurance, suggesting a number of areas in which players can differentiate Top factors in selecting a motor insurance provider 54% Value for Money Trustworthiness 36% Customer Service Players have an opportunity to appeal to customers behaviours and differentiate on any of these top factors: While some customers are entirely driven by one factor (e.g. Price), most purchasing choices involve a trade-off between multiple factors to select the best overall offer Value for Money: Price, Product & Service Players will typically aim to compete with the market in most areas and differentiate or dominate in one or two 35% 33% Level of Cover Overall Reputation 23% Flexible Payment Options 22% 15% Range of Benefits / Features 13% Ease of Understanding Policy 9% For example, Choice.com.au analysis based on premium prices and policy features shows a breakdown of the market into two groups: 9% Loyalty Rewards / Incentives Trustworthiness: Brand & Customer Experience Professional Advice 6% Simple Product Solutions Customer Service: Service Higher Prices Speed of Quotation Strategic Differentiators Opportunities to Differentiate ~75% of brands 5% Recommendation of Friend 2% Overall Quality of Website 1% Other 3% 0% 10% 20% 30% 40% 50% 60% 70% Level of Cover: Product Features ~25% of brands Highly competitive on product features High price competition More Features (1): See appendix for further detail Source: AC Neilsen 5 (1)

COMPETITORS IN THE MARKET Consolidation has not reduced customer choice, there are more targeted brands and business models in the Australian Motor Insurance market than ever before Incumbents Suncorp Group Many of their business models leverage the internet for distribution and a low cost offering Mixture of insurers and bancassurers Split into two business models: Aim to gain share on like-for-like offer Aggressors Aim to gradually build market share through quality offerings and minor differentiation from the Incumbents Offshoots of the Incumbent and Mid-tier brands using low-cost internet models to defend against the Aggressors New players looking to leverage aggregator model and aiming for a market paradigm shift IAG Full value chain insurers Aggressors are new entrants making aggressive and mostly price-based plays to gain market share Mid-Tier players have a reputable brand for motor insurance and small to moderate market share Mid-Tier Players Incumbents have been in the market over a long period of time and built up sizable market share Aim to gain share by undercutting on price Experimenters Incumbent Offshoots Aim to defend Incumbent share by matching Aggressor model Aggregators Aim for paradigm shift based on new model 6

MARKET SHARES OF KEY PLAYERS IAG and Suncorp represent the cosy duopoly of the domestic motor market in Australia, holding ~70% of the overall market on a GWP basis The majority of larger market players offer both CTP and comprehensive motor insurance, with CTP often acting as a loss leader to attract new comprehensive customers Market Share of Motor by Insurer CommInsure 2% RACQ 3% IAG Group brands include: Westpac Other 0.5% 4% Suncorp Group brands include: AAMI (National) RACQ (QLD, via a joint venture) RAA (SA, via a joint venture) APIA Australian Pensioners Insurance Agency (National) Allianz 8% GIO (NSW) The Buzz (Internet-only) Suncorp (QLD) CGU (VIC/NSW and national intermediated distribution) Wesfarmers 6% SGIO (WA) IAG 33% SGIC (SA) QBE 4% RACV (VIC, via a joint venture) Zurich 3% NRMA (NSW, ACT, TAS, QLD) Just Car (national niche player) Shannons (national niche player) Bingle (Internet-only) IAG and Suncorp have successfully maintained their ~70% market share through consistently low lapse rates (e.g. 47% of NRMA customers have been with them for 10+ years) Suncorp 37% This has been achieved by: Building and maintaining high levels of trust in their brands Effective loyalty programs (NCBs, multi policy discounts) 7

COMPETITOR POSITIONING The market is dominated by the large national and state players who target the mass market on value through competitive prices and service. Smaller players lead on price and/or target niches Price Key Observations Note: bubble size and positioning is illustrative Bingle Budget Direct Aust. Post Virgin The larger brands (e.g. AAMI, NRMA) focus on a mass market offering and primarily seek to balance product features and service quality with price YouI iSelect Just Car PAYD Coles Some of the larger and more established intermediated insurers (e.g. Vero, CGU) have adopted service-driven mass market offerings that tend to be more expensive than competitors Real Allianz Lumley ibuyeco QBE Niche Mass NRMA/RACV AAMI Shannons Aggressors such as A&G Group (via Budget Direct), Real and YouI aim to undercut the large incumbents on price, and focus on a mass market play through a single channel (internet) or through distribution agreements with existing mass market brands Vero APIA Comminsure CGU Suncorp Many players have also launched brands to target market niches (e.g. PAYD and Just Car target low car-users and young drivers respectively) with price-based offers GIO Product / Service Bubble size = approximate market share IAG Group Suncorp Group Some niche players such as Shannons and APIA target demographic or needs-based customer segments who will pay a premium for highly differentiated service experiences A&G Group Other 8

COMPETITOR CUSTOMER VALUE PROPOSITIONS (1/4) The Incumbent brands offer a range of GI products with a strong focus on cross sales, and tend to differentiate using service-based offerings and competitive pricing Incumbents Positioned as the insurer that offers better service, claims and pricing, AAMI primarily sells through call centres then internet GIO is a significant brand in NSW with plans to expand presence in VIC with a focus is on growing H&C then cross-sell to Motor Suncorp is a significant bancassurance brand in QLD Positioned towards a large segment called planners who understand risk and take pride in their belongings who primarily purchase over the phone then internet Focus is state-based rather than product (i.e. the emphasis is selling to the parochial Queensland home base) Distinct sub-brands aim to retain market share of vehicles (or customer segments) outside of underwriting guidelines: (e.g. Insure My Ride for motor cyclists, Just Car for grey imports, Bingle for online bargain hunters, APIA for over 50s and Shannons for motoring enthusiasts) Product is largely undifferentiated with the highest no claim bonus but lowest new car replacement (1 year) and personal effects ($200) There was a significant investment in pricing capability in 2007 to make it highly granular, active demand pricing and responsive to competitors The primary channels is sales through call centres then internet Size of the motor book allows for medium level of pricing sophistication (i.e. good use of relativities and interactions but not very granular) Product is largely undifferentiated Good inbound call capability which are now brand focused (i.e. historically the Suncorp and GIO call centres were combined resulting in poor service levels during the storm season) Discounts offered if taken together with home and contents insurance Largest insurance brand in NSW with a focus on attacking AAMI by promoting ease of switching Positioned as the insurer that is easy to do business with and gives greater choice Product is largely undifferentiated but more modular than competitors (e.g. select options such as car after an accident) with a focus on multi-policy discounts, which is a defensive tactic used by market leaders Discounts offered if taken together with home and contents insurance Less efficient claims model with limited cross-channel capabilities, but in the process of being rejuvenated Has a